EU bloc becoming ‘monster’, lawmaker warns

The EU announced a summit for January 30 as negotiations over a new “fiscal union" to combat the eurozone debt crisis opened with a key lawmaker warning the bloc is becoming a “monster."

European Union president Herman Van Rompuy gave the date in a video message less than two weeks after Britain vetoed a bid by the former Belgian prime minister to change the treaty binding the 27 EU states as part of efforts to save the single currency.

The news came as an unexpectedly positive reading on German business confidence and strong demand for Spanish debt helped ease eurozone worries.

Van Rompuy said that “bringing financial stability to the eurozone remains absolutely key for our future," adding that “there is a social way out of the crisis."

He noted that “almost all our member states are engaged in huge reform programs" affecting government spending and the business environment, and warned that “the path is long, longer than we expected."

With “zero growth expected in most of our economies" and some already facing recession, he said: “Let there be no doubt - there is a fundamental political will to move forward as a union - respecting fully each other’s situation."

Van Rompuy named the date just as representatives of all 27 states wrapped up a first day of negotiations on the legal shape of the new fiscal union.

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These talks included Britain, sitting as an “observer" after London vetoed plans for a new EU treaty at a December 9 summit designed to chart a way out of the eurozone debt crisis, fearing Brussels would encroach on its powers.

The negotiations, which also included representatives of the directly-elected European Parliament, did not get off to the best possible start, according to French EU lawmaker Sylvie Goulard.

The Liberal MEP said that “turning Europe into an angry father whipping his children is a fundamental error," adding that she did not subscribe to the draft document drawn up by Van Rompuy’s staff.

The agreement notably allows any other EU state signing up to the new fiscal union to take another state before the European Court of Justice if it did not meet the new demand for all members to adopt balanced budgets.

“I do not see myself going off to sell to my fellow citizens a Europe that behaves in this way," Goulard said.

“To say ‘it’s Europe or democracy,’ I do not agree," she said, adding: “We are in the midst of creating a monster.

“Will a single Chinese or American investor be reassured when reading this treaty?" she asked.

The EU has come in for harsh criticism from democrats who argue it is ignoring democratic controls and processes, as in Italy and Greece where technocratic governments have taken over from elected leaders to implement tough austerity measures demanded by Brussels.

On Monday, London refused to back another key decision reached at the December 9 summit when Finance Minister George Osborne rejected calls to loan some 30 billion euros ($40 billion) to the International Monetary Fund.

The money would allow the IMF to help struggling eurozone governments finding it difficult to raise fresh funds from markets sceptical that leaders can stabilise the public finances.

GERMAN DATA BUOYS SENTIMENT

Two leading sentiment indicators in Germany brought a touch of Christmas sparkle to the pall of gloom currently enveloping the economic region.

The Ifo economic institute said it was bringing “good tidings" with the announcement that its closely watched business sentiment index defied analysts’ expectations for the second month in a row and rose to 107.2 points in December from 106.6 in November.

Analysts had been projecting a fall in the index to about 106 points.

“The German economy appears to be successfully defying the downturn in western Europe. These are good tidings for Christmas," Ifo president Hans-Werner Sinn said.

Earlier, a separate survey showed that consumer confidence is also holding up in the face of the eurozone debt crisis as rising employment and incomes helped to offset looming recession fears.

GfK released its latest index of household confidence, with the barometer forecast to remain steady at 5.6 points in January, unchanged from December.

Ifo calculates its headline index on the basis of companies’ assessments of their current business and the outlook for the next six months.

The sub-index measuring current business held steady at a high 116.7 points and the outlook sub-index rose to 98.4 points, their highest level since August.

SPAIN CONFIRMS RAJOY AS PM; SPANISH DEBT SELLS

In Madrid, Spain raised €5.64 billion ($7.44 billion) in an auction of short-term debt, raising more money than first planned and at sharply lower rates.

Spain had originally planned to sell €3.5-4.5 billion in three- and six-month bills in Tuesday’s auction. Rates fell dramatically from the last comparable auction last month, a sign of easing market tensions.

Dealers said there seemed to be a more positive tone on eurozone debt crisis development as the bloc agreed on Monday to lend more money to the International Monetary Fund for use in stabilising the single currency area.

Spain’s state budget deficit fell to 4.84 per cent of gross domestic product in the first 11 months of 2011, approaching the target for the year, the government said Tuesday.

The shortfall came to €52.39 billion ($A69.15 billion) over the January to November period, the economy ministry said in a statement. The deficit was down 4.9 per cent compared to the same period last year.

The state deficit figure does not include Spain’s 17 autonomous but centrally-funded regions, whose own individual accounts have raised concerns for the country’s overall public deficit.

The government’s official target this year is for a 4.8 per cent state deficit excluding the regions and an overall public deficit of 6.0 per cent, a level which the government has warned may not be met.

Also on Tuesday, Spanish MPs voted to make conservative leader Mariano Rajoy the new prime minister, approving his program of sweeping budget cuts and tough economic reforms.

Facing urgent pressure to fix Spain’s economy, with five million people unemployed and warnings of a fresh recession looming, Rajoy, 56, has vowed to create jobs, clean up banks and reassure investors over the country’s finances.

For Spaniards, this means above all a deepening of spending cuts that have already brought thousands onto the streets in protest.

Rajoy’s warnings of austerity did not stop his Popular Party winning the November 20 general elections and seizing control of the 350-seat Congress, which voted by a majority of 187 to install him as prime minister.

“I know that things are going to be difficult, but I am keen, I have hope and determination to take Spain forward," Rajoy told reporters as he left the parliament.

He said he would announce his government after he is sworn in by King Juan Carlos on Wednesday. Government ministers will formally take office on Thursday and will hold a first cabinet meeting the next day.

He has vowed to slash the public deficit by €16.5 billion ($21.78 billion) through public spending cuts, with only pensions escaping the knife.

“A government cannot do absolutely everything," Rajoy said Tuesday after the parliamentary vote.

“A government is there to create conditions for people to be more free, so that people can work and generate well-being, wealth and jobs."

He acknowledged on Monday that the country may miss its deficit target of 6.0 per cent of GDP this year and warned that if the figure reaches 7.0 per cent, the government will have to make €10 billion more in cuts.

EUROPEAN STOCKS SURGE

European stocks closed sharply higher and the euro got a boost from the overnight developments.

In London, the FTSE 100 index of top companies closed up 1.02 per cent at 5419.60 points. In Paris, the CAC 40 gained 2.73 per cent at 3055.39 points and in Frankfurt the DAX 30 jumped 3.11 per cent to 5847.03 points.

Madrid added 2.44 per cent and Milan rose 2.87 per cent.

EUROZONE BAILOUT FUND MAY LOSE TRIPLE-A RATING: FITCH

Meanwhile, the Fitch credit rating agency has warned that the eurozone’s new bailout fund could lose its triple-A debt status if its main sponsors France and Germany do.

“Fitch Ratings says the ‘AAA’ rating on debt issues of the European Financial Stability Facility largely depends on France and Germany retaining their ‘AAA’ status," the company said in a statement.

“The revision of the rating Outlook on France to ‘negative’ last Friday implies that the risk of a downgrade of EFSF debt has increased," it said.

DEXIA SELLS LUXEMBOURG SUBSIDIARY TO QATARI FUND

Troubled Franco-Belgian bank Dexia Group says it has sold its Luxembourg subsidiary to Qatari investment fund Precision Capital and the state of Luxembourg for €730 million ($963.51 million).

Precision, which is backed by the Qatari royal family, will hold a 90 per cent stake in Dexia Banque Internationale a Luxembourg, while the state of Luxembourg is buying the remaining 10 per cent, Dexia said in a statement on Tuesday.

Dexia was split up and partially nationalised this year after other banks, worried by its huge reliance on short-term funding and large exposure to struggling countries like Italy and Greece, stopped lending to it.

The Belgian state took over Dexia’s Belgian retail arm, while other subsidiaries are in the process of being sold.

Tuesday’s deal is Precision Capital’s second move into the Luxembourg banking sector.

In October, Precision agreed to buy Luxembourg-based KBL European Private Bankers, the private banking division of Belgium’s KBC Group, for just over €1 billion.

Precision is backed by Qatar’s ruling Al Thani family. Sheik Hamad bin Khalifa Al Thani, the emir of Qatar, holds near absolute power in the small Persian Gulf country.

Dexia’s Luxembourg arm is not the only part of the bank to attract attention from Qatari state-linked investors.

Qatar National Bank said in mid-October it was launching potential takeover talks with DenizBank, Dexia’s Turkish division. Qatar’s sovereign wealth fund, the Qatar Investment Authority, controls QNB through a 50 per cent stake.

OPEC member Qatar sits atop the world’s third largest natural gas reserves, and is the world’s largest supplier of liquefied natural gas. Its European holdings include investments in Barclays, Credit Suisse Group, Volkswagen and the London Stock Exchange Group.